How do you determine which side of a split is the hardfork? Ethereum upgrades the protocol via a hardfork in regular intervals. Is each of those events taxable now? What happens if some jokers keep using the original protocol (such as in the case of Ethereum Classic) - which of the two chains generates taxable income? What happens when there's a softfork split and neither of the two resulting chains goes through a hardfork?

Technically, specific identification allows us to reverse from LIFO to FIFO... or choose any order - even send part of a specific coin from A to B. Probably it is possible to find algorithms to achieve an averaged price effectively as well as HIFO.

After further review, it seems like we might need to associate each transaction with the pubkey where the currency resides. I don't know if you can merely calculate it a certain way. I think you might need to show proof you spent X currency (public key).

It would seem to be ok to use any specific identification method for each coin. However, Average cost is not a specific id method. The IRS FAQ (Q37) says each transaction must show:
>(1) the date and time each unit was acquired, (2) your basis and the fair market value of each unit at the time it was acquired, (3) the date and time each unit was sold, exchanged, or otherwise disposed of, and (4) the fair market value of each unit when sold, exchanged, or disposed of, and the amount of money or the value of property received for each unit.
The bitcoin.tax 8949 report shows all of this except the time. Maybe they will add it in the future.

I think they got this wrong. In my view, forked coins have a zero cost basis at the time of fork. This isn't income; nothing is created or granted, it is simply an alternate version of a codebase which may or may not be used and establish a value. Further, forks can and do happen all the time that 99% of people may be unaware of, making it impossible to track all forks and any "income" from those forks. Did you know bitcoin has been forked 105 times? Am I supposed to account for income gained from "Super Bitcoin" and "Bitcoin Lambo"? (Yes, those are real forks.) "Bitcoin Pizza" no longer has a working blockchain, is that an income AND loss? There is no way to safely move my "Big Bitcoin" without exposing public keys, so I choose not to take ownership of it, even though I technically DO control those coins and can sell them if I wanted to. Therefore I've accounted all forked coins to have a $0 cost basis at the time of the fork and pay capital gains tax on the full value after every trade. This new guidance suggests I did it "wrong." Luckily this is "guidance" and not "law."

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I think that anyone, like me, who is worried that their methods of tax recordings are now incorrect and are panicking they have to modify 10 years worth of tax returns shouldn't have much to worry about so long as you ARE paying taxes, can provide a compelling argument as to why you did what you did, are consistent, and keep detailed records. However, everyone entering the space now and in the future should do their best to follow IRS guidelines.

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At least, this is my view of things, and I may or may not be right. Do you agree or disagree?

I very much agree with you. I'm literally writing a piece for my own website about all the problems this creates. I was able to get about 15 minutes on the phone yesterday with the author of the Revenue Ruling who works at the IRS Office of General Counsel, and posed a number of your questions.
I specifically brought up Bitcoin Pizza and she seemed unfamiliar with that fork and told me it depends on the "facts and circumstances." I brought BCHABC/BSV and the hash war that followed that fork, and again got "Facts and circumstances." I got the impression that the IRS thinks there's only been 3 forks ever, BCH, BTG and BSV. I specifically asked about BTG, which was so low in value at the time of the fork I had no interest in risking exposing my private keys to claim $3 worth of coin. She said that didn't matter, it was still income because I **could** have.
This is a big mess, and I would recommend contacting your congress people as ultimately they create the tax law and the IRS only interprets and enforces it.

Did you know that B2X was valued at almost $1,000 per coin on December 27th or whenever it forked near that date? Nobody knew about this coin, it traded on some inaccessible exchange in China (where only the owners were probably wash trading and pumping to the moon on fake volume), using probably virus-infected wallet software (that could steal your private keys, thus threatening your wealth, identity, safety) that most people couldn't even sync or have the computer savy to deal with. This is clearly substantial restriction to income.
“Income although not actually reduced to a taxpayer’s possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions.” (U.S. Treasury Regulations Section 1.451-2)
[https://medicine.yale.edu/finance/images/Constructive%20Receipt%205\_12\_15\_tcm105-18705.pdf](https://medicine.yale.edu/finance/images/Constructive%20Receipt%205_12_15_tcm105-18705.pdf)
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I respect the IRS however the people who are writing these laws don't know everything and much of it can be ambiguous in some circumstances. We can only do our best as human beings, both the IRS and citizens.

Sorry bud, the matrix has you...the IRS is just a collection administration for the Rothschilds banking cartel, “nothing” to do with government...it’s a “privately owned corporation”..always has been, research the Federal Reserve...it ain’t “Federal” and it’s all part of how our slave masters control the farm animals :)

I think this is the first time that the IRS has explicitly stated that specific identification is a valid accounting method for virtual currency:
Q36. I own multiple units of one kind of virtual currency, some of which were acquired at different times and have different basis amounts. If I sell, exchange, or otherwise dispose of some units of that virtual currency, can I choose which units are deemed sold, exchanged, or otherwise disposed of?

A36. Yes. You may choose which units of virtual currency are deemed to be sold, exchanged, or otherwise disposed of if you can specifically identify which unit or units of virtual currency are involved in the transaction and substantiate your basis in those units.

Q37. How do I identify a specific unit of virtual currency?

A37. You may identify a specific unit of virtual currency either by documenting the specific unit’s unique digital identifier such as a private key, public key, and address, or by records showing the transaction information for all units of a specific virtual currency, such as Bitcoin, held in a single account, wallet, or address. This information must show (1) the date and time each unit was acquired, (2) your basis and the fair market value of each unit at the time it was acquired, (3) the date and time each unit was sold, exchanged, or otherwise disposed of, and (4) the fair market value of each unit when sold, exchanged, or disposed of, and the amount of money or the value of property received for each unit.

Note, however, that they also clarify that this is not the default accounting method:

Q38. How do I account for a sale, exchange, or other disposition of units of virtual currency if I do not specifically identify the units?

A38. If you do not identify specific units of virtual currency, the units are deemed to have been sold, exchanged, or otherwise disposed of in chronological order beginning with the earliest unit of the virtual currency you purchased or acquired; that is, on a first in, first out (FIFO) basis.

So, they're trying to set up the scenario to say that a coin split is income so that they can tax you... but the real issue is privacy. They'll claim you made income and throw you in jail if you don't report it as income, but in reality, its a spit and NOT a taxable event.

They're trying to force people to show what they own. They're trying to justify the invasion of privacy as if you're a tax evader for not declaring "income" from what is essentially equivalent to a stock split. People don't get income from holding an asset that does not produce anything.

People don't buy crypto with the expectation of making a dividend. They buy with the expectation of holding a long term asset that could increase in value.

" A23. When you receive cryptocurrency from an airdrop following a hard fork, you will have ordinary income equal to the fair market value of the new cryptocurrency when it is received, which is when the transaction is recorded on the distributed ledger, provided you have dominion and control over the cryptocurrency so that you can transfer, sell, exchange, or otherwise dispose of the cryptocurrency."

Good luck with that. There's is no fair market value on illiquid hardforks or airdrops.

This would be absurd. I don't think people have realized how terrible this is potentially. Basically anyone who owned bitcoin will have to redo their taxes from 2017 and 2018? Unless they already declared taxable income at the date of the forks, which I can guarantee almost no one did.

No, it will not according, to that guide. This event is changing consensus mechanism, which is why it's considered a fork, but a new currency is not being created. The example they are describing is one where, much like BTC and BCH, when a chain is copied/forked and a new symbol created, your key from the first chain allows access to coins on the second chain as well. That's not what's taking place in this case.

No taxation without representation. These cockroaches actually believe they can use regulatory capture, bought politicians, and corruption in general to stifle and stomp on our new industry while at the same time attempting to take from us what is rightfully ours. Maybe finally accept we are here to stay and that terrorist financial totalitarian surveillance tools like KYC/AML have NO place in this industry.

It's Congress that ultimately makes the tax laws. The IRS just tries to interpret what Congress has mandated. So they didn't "buy" politicians, the ones who are ultimately responsible for the tax laws are the politicians.

I'll be dissecting this on The BitcoinTaxes Podcast later this week with Tyson Cross. Hopefully we'll be able to shed some light on some of the questions left unanswered, or that have now been created as a result of this new guidance.

Am I the only one that thinks that this is incredible for the crypto space?? I mean the IRS is talking about airdrops and forks, that's insane to me!! Especially with the news of UNICEF using it for a donation bond or something (sorry sloppy description). I can't believe we went from lambos and crypto kitties to having major industries and businesses experiment or use the tech.

Uhh, I dont know. I have a feeling they are trying harder and harder to scare people away from crypto. Think about all the stories that people will tell how they tried investing in crypto and got fucked cause they didnt understand all these tax laws, and owe all these penalty fines/interest. I even stressed when doing my taxes and it turned me off a little, thinking even though I did it right, what if the IRS doesn't do it right, and now I need a lawyer.

if they dont do it right like they didnt do their previous technology right, they will fail again. the problem with cursing the people is when that curse is returned. they are not nearly as intelligent or powerful as they pretend as our current failing woodrow wilson cursed economic system shows.

Seems like most things to do with taxation in the crypto world (or, in general I suppose) aren't super well-received. I can only speak to what I've experienced being a part of the crypto community though - it seems pretty split. There are a good amount of crypto enthusiasts who don't like the idea of taxation because it goes against what crypto "stands for", while others realize that taxation is generally inescapable and if we want mass-adoption then we have to accept that proper taxation (and regulation) is inevitable.

the FEDs economy iis on its deathbed.. mass adoption will happen with or without the IRS. the problem for them is that they have a record of failure, and they will fail again because they did not do it right. as France pointed out, taxing every single trade is tyranny.

Oh there is no doubt they are going to revisit the rules, especially as it becomes more popular. However, it is pretty hard for them to just completely change the rules, as this would require literally every single person whose used crypto to have to amend their returns. This would be great for me and my business no doubt, but would be really shitty for every crypto user, especially those who are very low-income who don't have the money and time to really deal with amending returns.
That's what I think the biggest barrier is, and the IRS could catch a lot of heat if they end up doing something so drastic (and it would put into everyone's minds the fact that they could just do it all again, which would make people really untrustworthy of the IRS, even moreso than they already are). Its a hard place the IRS finds themselves in because they underestimated the impact of crypto back in 2014 when they first released how to deal with it tax wise.

My understanding is IRS is not the one who creates the rules, they just intrepret the law which is created by politicians. Politicians can change the law. IRS intreprets the law but that intrepretion cam be challenged in court.

When a coin has a hard fork everybody “receives” their coins at the same instant. Because the new fork goes from not existing to existing during that instant there is no available market value.

I don’t understand how that is supposed to work like that. I’m pretty sure this is different treatment than stocks (like when there is a spin off of a division of a company to shareholders as a new company).

Or is it? They could have different values due to tx costs being different due to different consensus on each chain.
Are all coins that can be atomically swapped the same? No, so neither are eth1 and eth2 coins.